Why McDonald's Will Never Be Great Again

Ronald and Co. threw everything they had into pumping up sales in August. Result: Not much.

Inside A McDonald's Corp Restaurant
Getty Images
These should be good times for McDonald's (MCD), but actually, the Golden Arches are looking a bit drab -- at least in the U.S.

The world's largest restaurant operator offered up uninspiring financial news on Tuesday, reporting that same-store sales at its domestic locations rose a mere 0.2 percent during the month of August.

That's pretty bad. It's not just a matter of not beating inflation. McDonald's rolled out its Monopoly promotion earlier this year, and the popular giveaway typically provides a boost to store traffic as guests collect game pieces in the pursuit of food and larger prizes.

McDonald's has also been beefing up its menu with new items including a premium chicken wrap this summer. More recent additions include chicken wings and a new steak breakfast sandwich.

And the result of all that effort to move the needle? Essentially, nothing. Ronald's painted-on smile must be getting strained.

A Delicious Decade

Fast food has been a winning industry over the years, and McDonald's posted consistently positive monthly comps for nearly a decade before slipping in October of last year. The results have been largely unimpressive for most of the months since then.

One trend eating away at McDonald's is the growing popularity of fast casual restaurants. The success of Chipotle Mexican Grill (CMG), Panera Bread (PNRA), and other quickly expanding concepts has come at the expense of the classic burger flippers.

Consumers are choosing the higher quality food at fast casual chains, even if it means that they have to pay a little more. It also doesn't help that smaller burger chains with cult followings such as In-N-Out and Five Guys are starting to broaden their reach.

McDonald's survived "Super Size Me," a documentary that bashed the chain's unhealthy and gargantuan portions in 2004. Comps remained positive a few years later as the global economy went into a tailspin. So it's a surprise to see the operator seem so mortal now that the economy's back on track.

Big Trouble for Big Mac

McDonald's isn't going away anytime soon. It serves 69 million customers through its 34,500 restaurants worldwide on any given day. And globally, sales growth was better. However, its very size could be a problem as it tries to grow. After all, these days the chain's a popular target for health advocates blaming it for escalating rates of childhood obesity and labor activists trying to get it to pay its employees more.

It's probably telling that McDonald's became the central target in strikes this summer to get the fast food industry to roughly double its starting wage to $15 an hour. Strikes hit other large chains too, but it was McDonald's making most of the headlines.

In theory, McDonald's is one of the few fast food chains that could survive paying that much. The $8 billion hit across its franchisees and company-owned stores would be steep, but it could pass that along to consumers in the form of modestly higher prices.

One can even argue that McDonald's is bracing itself to pay more. It recently began adding higher tiers to its Dollar Menu. The introduction of Mighty Wings and steak biscuits this summer points to a chain that's trying to drive average receipts higher.

However, that may not work for a company that has established its brand on cheap eats. A popular reason given for the slide in store traffic late last year was that the chain had tried to aim too high with premium chicken sandwiches, fancy coffee drinks, and fruit smoothies. Customers wanted more value, it was theorized, which led to a renewed emphasis on promoting its iconic Dollar Menu.

However, now that that isn't working -- and McDonald's has exhausted its efforts to aim higher with chicken salads, premium McCafe beverages, and artisan bread sandwiches -- where does the chain go from here?

You know the answer. McDonald's will never be great again.



Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill, McDonald's, and Panera Bread. The Motley Fool owns shares of Chipotle Mexican Grill, McDonald's, and Panera Bread. Try any of our newsletter services free for 30 days.

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Constance

THEY GOT RID OF THERE GREAT CHEESE AND APPLE DANISH STEAMED WARM...BRING BACK THE DANISH....YUM

March 19 2014 at 10:07 PM Report abuse rate up rate down Reply
jmg62

Well I guess it would depend on what's meant by Mr. Munarriz in terms of "being Great again". McDonald's - for as large as it is, decided to give away certain controls in order to franchise. As other's have done. No, it's true that same store sales, w/o corporate incentives to customers will continue to be middling as the trend only now captures attention to the detriment of SHAREHOLDERS. Looking at just the broken out financials one can see the entry into higher tiered foods that will occur too fast and erode more of their base than other similar fast food competitors. Holding down the value portion of the market is a considerable niche McDonald's has "owned" and thrived in more than Burger King or Wendy's. So heading up a salient to increase SS Revenues - not to mention profits will need the inclusion of all skills on every level. Just looking at the slides above - the problem becomes apparent. Setting those aside - I wonder about the development of applications, hiring, discipline, firing, introduction, orientation, training on each process, proper handling, initiative, documentation, incentives for completing training, evaluations, employee input/outputs, customer service the "McDonald's" way, knowledge, production, cooking, frying, drinks, shakes, temperatures, mentoring, using knowledge with customers/fellow employees, write-ups, trainee > employee > leader > kitchen supervisor > shift supervisor > shift mgr. > Asst. Mgr. > Mgr. > Store Trainer, ...etc.. When asked in an on-site survey - no one could point to anymore than 2 people in AM, PM, Night shifts that were fully trained. 5 Days out of several weeks for 2 wks out of 4 observed. No one but 3 people in 7 stores had worked there more than 2.3 yrs with 7 mos. being the average. No one of all were introduced or oriented to greater than 3 stations. The remainder "picked up on the fly" - "done similar" - or someone showed them "quick like". Only 17 lunch shifts were "fully staffed" - not "optimally staffed" - for customer service or across industry recommendations. So even if all 20 lunch shifts were staffed fully - if the avg. is 15 hrs Dining Room is open & 3 hrs Drive Thru is open - Food Service: 18 hrs x 10 days = 180 hrs in 10 days in only 7 Stores with only 10:30 AM - 2:30 PM fully staffed out of a possible 1260 hours a mere 280 hours were "fully staffed" - what happens to all listed above in terms of Same Store Sales in the other 980 hours serving food? Utilization of all assets is diminished and McDonald's is using the LEAST efficient Management Tool to INCREASE SS-$'s. More and more stores to increase overall revenues/profits. Pricier food items in Stores. McDonald's can keep raising the tiers of food until Lobster and Filet Mignon are on the menu - however, that's not their niche and they'll suffer more than BK or Wendy's, et. al.. to be certain.

September 13 2013 at 4:26 AM Report abuse rate up rate down Reply
Mandy

I think one problem is that they tried to be "healthy" but just presented more junk food options disguised as healthy food. A fruit option is great; but their parfait is loaded with sugar. One time I got their apples and put them in my bag for later. I left my bag in my car for three weeks and they looked exactly the same. WTF? When I get organic apple slices from Trader Joe's they start going bad in a few days. Their chicken sandwich is fattier and saltier than some of their burgers. I'm sure the smoothies have little fruit content and loads of sugar also. I ordered a plain iced coffee the other day and got a weird syrup-y drink that tasted like chemicals.
People are finally waking up to what they are putting in their bodies. Splurging on a calorie-rich burger is one thing, but I think people are getting scared of what McDonald's food is doing to them in other ways besides just some weight. Things may be better for them if they used more real/fresher ingredients and didn't dump so many preservatives, salt, and sugar into everything.

September 12 2013 at 9:45 PM Report abuse rate up rate down Reply
liondog96

So if I don't eat fast food I will live forever? I can't die? I thought Heaven was a great place to go to.

September 12 2013 at 4:28 PM Report abuse rate up rate down Reply
Doug

McDonald\'s fries were THE best years ago and were even rated first-rate by Julia Child. Then libs scared everybody who listens to their crap about the fries being cooked in animal fat and McDonalds changed to vegetable fat and now they are OK but not delicious like they used to be.

September 12 2013 at 11:38 AM Report abuse -1 rate up rate down Reply
Doug

Libs on here and their \"I know all about healthy food\" attitude. BS

September 12 2013 at 5:52 AM Report abuse +1 rate up rate down Reply
Doug

This is BS. I suppose the same author will claim TCBY is doing great guns.

September 12 2013 at 5:48 AM Report abuse +2 rate up rate down Reply
audioknot1

That food is guaranteed to kill you over time. Extremely unhealthy.

September 12 2013 at 5:39 AM Report abuse -1 rate up rate down Reply
toosmart4u

Gave up on all fast food joints. Learned to eat healthier.

September 12 2013 at 5:36 AM Report abuse -1 rate up rate down Reply
atile21

Coffee is bad here in Sarasota,FL.

September 12 2013 at 5:10 AM Report abuse -1 rate up rate down Reply